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Peter Morici
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Peter Morici is a Professor of Business at the University of Maryland. Prior to joining the University, he served as Director of Economics at the U.S. International Trade Commission. He directed the agency's professional economists working on ITC investigations and provided international... More
  • The Bush Tax Cuts and Deficit Reduction Nonsense
    Debating tax cuts and deficit reduction both parties are blind to facts and deaf to reason.
    President Obama and his Democrats stubbornly argue the economic recovery will collapse if $40 billion in long-term unemployment benefits are not approved. Yet, they reason a $60 billion annual tax increase on families over $250,000 will not impose a greater loss in spending and economic growth. No accident that those collecting unemployment are more likely to vote for Democrats and those President Obama wants to tax include a heavy concentration of small business owners more likely to vote Republican.
    More troubling, the President has convinced leading Republicans taxes must go up to reduce the federal deficit, as evidenced by GOP endorsements of the Chairmen’s report of National Commission on Fiscal Responsibility.
    In 2007, the year before the recession, with Bush tax cuts in place and wars in Afghanistan and Iraq at full tilt, government spending and the deficit were was 19.6 percent of GDP and $161 billion, respectively. For 2011, with the economy recovered, President Obama’s budget projects 25.1 percent and $1.3 trillion.
    The Democrats took control of the Congress in 2007 and used the recession as cover to permanently increase spending on the federal bureaucracy, entitlements and industrial policies.
    Americans can afford the Bush tax cuts, but can’t afford free spending Democrats and Republicans who are so easily cooped by them. Witness the gems served up by the National Commission, now embraced by self-proclaimed conservative Republicans like Idaho Senator Mike Crapo.
    To cut the deficit, the Commission recommends new entitlements—automatic extension of long-term unemployment benefits, early retirement under social security for workers in physically vigorous occupations, and new social security benefits for low income Americans.
    The commission proposes higher income and Social Security taxes, a 15 cent gasoline tax, higher user fees, and pushing down federal health care spending responsibilities onto the states and municipalities, which will result in higher sales and property taxes.
    The nation has long term budget issues but this Commission lacked the courage to address them.
    When Social Security was established, life expectancy was 64 and the Social Security retirement age was set at 65, whereas today life expectancy is 78 and the retirement age reaches 67 in 2027 under current law. The brave souls on the Commission recommended increasing the age to 69 in 2050—most affected Americans are too young to vote.
    Time to get serious. Increase the retirement age to 70 for everyone under age 55. Ten years is plenty to plan for that. Set aside jobs in municipalities—for example, maintenance positions at the schools or clerking in county offices—for those individuals over 60 in physically rigorous occupations that can’t find alternative work.
    The United States spends 19 percent of GDP on health care, while Germany with a system of mandatory private insurance—note the similarity to Obama Care—spends 12 percent. The United States simply can’t afford that competitive disadvantage.
    The Commission sets the unheroic target of controlling health care spending to the rate of growth in GDP plus 1 percent—that would widen the gap with our competitors and further tax economic growth and jobs creation.
    It is high time for real reform. Limit prices Americans are charged for drugs to what the Germans pay, slice doctors’ salaries and overhead paid to hospitals and private health insurance bureaucracies to German levels, and implement genuine malpractice reform.
    Alas, members of the AMA, pharmaceutical and health executives, and tort lawyers contribute generously to campaigns of Donkeys and Elephants alike, making Mules of the rest of us.
    Americans admire honesty and integrity and will do what genuinely needs to be done, but minds are weak and souls are cheap on Capitol Hill and at the White House.
    Sadly, most Americans are going to wind up paying higher taxes and not getting much for it but more budget troubles, high unemployment and limited futures for their children.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Dec 05 4:53 PM | Link | 1 Comment
  • Facing Up to China
    In 1876, Europeans visiting the Philadelphia Centennial Exposition were astonished by American industrial prowess. In two generations, the United States had progressed from a simple agrarian society to challenge the most advanced European economies.
    Now, China confronts America in an historic test transcending commerce.
    Americans believe individuals, each defining their own lives, best chart the progress of the nation. Governments draw legitimacy from collective approval—citizens are the sovereign.
    Markets and democracy define America. Our institutions cultivate competition among individuals and ideas that shape our common material and civic lives.
    Recently, Democrats and moderate Republicans lost sight of those fundamentals, and imposed health care reforms, bailouts and huge deficit voters simply don’t want. They were soundly defeated in mid-term elections.
    Markets and democracy are mutually reinforcing. Markets work best when personal freedoms are protected, and democracy best safeguards those liberties. Free markets give individuals a strong interest in securing democracy.
    Since World War II, the United States has worked with allies in Europe and elsewhere to build international institutions that promote open markets, human rights and democracy.
    China is no champion of those values.
    The Communist Party imposes an authoritarian regime and assumes parental authority over its citizens. It prefers state capitalism to private enterprise, and embraces market reforms only as needed to participate in global commerce on terms unfairly tilted to China’s advantage. Unless compelled by necessity, it will not adopt market reforms that could instigate popular sentiment for democracy.
    China is no 19th Century America.
    Nineteenth Century America made pioneering contributions to steam, railroad, telegraph, and electrical technologies. Wages were higher than in Europe and attracted skilled immigrants. Considerable resource wealth powered development.
    China accomplishes growth with appropriated technology and cheap labor, and is desperately dependent on imported oil and resources. It compensates for shortcomings by compelling western companies to transfer knowhow and with an undervalued currency that subsidizes exports and suppresses the real wages of industrial workers. Its middle class prosperity is built on exploited factory labor.
    During the Cold War, U.S. moderates advocated engagement with the Soviet Union. They believed, through our example, its citizens would see the power of individual liberty and compel change. Subsequently, Washington adopted that strategy toward China.
    That is folly.
    The Soviet Union collapsed, not because it bought into Jeffersonian ideas, but because its economy failed. China's economy is succeeding. Don't look for its leaders to call for free elections anytime soon.
    To sustain the Communist Party, Beijing has a strong interest in selling its brand of authoritarian capitalism to others and redefining international institutions that promote open global markets and human rights.
    To secure oil and other resources and enhance global influence, China is investing abroad, building a blue-water navy and modernizing its army.
    Through mercantilism, China has accomplished huge trade surpluses and breakneck growth, imposed on the United States huge trade deficits and high unemployment, and made American free market prescriptions for the global economy appear foolish and outdated
    Through diplomacy, the United States has failed to persuade China to abandon currency and other mercantilist policies that harm the U.S. economy.
    At the IMF and G20 meetings, German and other key Western allies abandoned the United States, leaving it to fend for itself.
    America stands on a lonely perch, and the time for talk is over.
    Washington must respond to Chinese mercantilism with actions, not words.
    China’s purchases of dollars and foreign securities to maintain undervalued yuan come to 35 percent of exports. Washington should impose proportionate tax on purchases of yuan used to buy Chinese goods or invest in China, and intervene in currency markets to push up the value of the yuan.
    Washington should place limits on Chinese technology sales and investments in the United States that mirror the restrictions China imposes on imports and foreign investments.
    Across the board and without exception, the United States should decisively answer Chinese protectionism.
    Failure to act aids China's success. It is appeasement and courts disaster.

    Disclosure: no positions
    Nov 16 10:50 AM | Link | 1 Comment
  • Democrats Don’t Deserve Re-Election
    Barack Obama relentlessly references the handiwork of George Bush to alibi the weak economy. But if deeds should measure who governs, the Democrats deserve the boot.
    The economy is burdened by huge federal deficits, trade imbalances with China, and horrendous problems at the banks, and the Democrats’ fingerprints are all over those problems.
    Democrats claim the Bush tax cuts and two wars caused Washington’s fiscal mess but the facts tell another story.
    In 2007, when the Democrats took control of Congress, federal spending, with wars going in Iraq and Afghanistan, was 19.6 percent of GDP, and the federal deficit was a manageable $161 billion. For 2011 with the recession over, the Obama Administration projects spending at 25.1 percent of GDP, and with the Bush tax cuts repealed for the richest families, a $1.3 trillion deficit.
    The President and Speaker promised temporary stimulus spending to jump start the economy but indulged in massive permanent new entitlements and armies of regulators Americans simply don’t want. That’s why, despite squirrelly views on social issues, Tea Party candidates threaten Democratic incumbents.
    The Great Recession was caused by huge trade imbalances with China, which destroys American jobs, and a culture of entitlement on Wall Street that defines good banking practices as anything generating big bonuses, the public be damned.
    President Bill Clinton negotiated China’s entry into the World Trade Organization but gave the Middle Kingdom a pass on currency manipulation and other mercantilist practices. Now, those shenanigans have created a $250 billion bilateral trade deficit and encourage other Asian economies to follow suit, stealing 2.5 million manufacturing jobs.
    President Obama has warned China the United States has options if it won’t stop manipulating its currency, but he doesn’t act. He is more concerned about his standing among international leaders.
    Despite European recognition of the China problem, EU allies refuse to support Mr. Obama’s diplomatic efforts. Worried to keep his Noble medal shinny, the President sacrifices American workers on the altar of global governance.
    The banks were deregulated by President Clinton, including repeal of Glass-Steagall. That permitted institutions making loans with federally guaranteed deposits to merge with Wall Street casinos that recklessly trade and hoist doggy securities on investors to pay executives unconscionable bonuses.
    Obama-Pelosi bank reforms added more inept regulators but too big to fail Wall Street banks are bigger than ever. Monopolizing the CD market, those behemoths are driving down rates the elderly receive on savings and paying themselves over $140 billion in salaries and bonuses this year.
    Now, big banks face charges of fraud and mammoth civil judgments for filing false titles and foreclosure documents that threaten to freeze up the housing market.
    Meanwhile, small and medium sized businesses can’t get loans from Main Street banks, which are being squeezed out of business by the Federal Deposit Insurance Corporation and federally subsidized Wall Street competitors.
    It’s raw politics. Wall Street contributes heavily to Democrats, while Main Street bankers tend to be Republicans.
    The Republican Pledge to America offers few solutions but on their record, Democrats simply don’t deserve the Speaker’s gavel.

    Disclosure: No positions
    Oct 17 3:33 PM | Link | 1 Comment
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